San Diego: Developers aim to meet demand with new downtown homes

by | Sep 9, 2016 | Financial Times

The collection of bleak city blocks between Seventh and Eighth avenues in downtown San Diego is mostly lined with neglected low-rise commercial buildings and dilapidated warehouses.

It is a far cry from the city’s beachfront communities such as Del Mar and La Jolla, which boast some of the highest price tags in southern California. Yet Bosa Development, a Vancouver-based company, paid $42.6m for the site last December, with plans to build as many as 800 condominium units on it.

The gambit is indicative of downtown San Diego at present, where a flurry of new developments is taking shape. Among the projects already under construction is Pacific Gate, a 41-floor condominium tower with 215 units, where prices start at $1.9m for two-bedroom homes and $2.8m for three bedrooms, according to Gonzalo Vidano, a broker at San Diego estate agency Sky Village Realty. Though full pricing details are yet to be released, the condos are expected to be among the most expensive in the city, he says.

City authorities have also approved plans for one of the largest, most expensive developments in San Diego’s history. Work begins next month on Navy Broadway Complex, a seven-building, $1.3bn project by the developer Doug Manchester, which will span 13-7 acres.

In all, 63 projects worth more than S6.4bn in total are in some form of development in downtown San Diego, according to the planning agency Civic San Diego. The group says 1,248 units were completed in 2015 and that another 8,106 are in the planning stages.

“For decades, downtown was kind of an afterthought when it came to major property development,” says Linda Sansone, an estate agent with Willis Allen, an affiliate of Christie’s International Real Estate. “Now you have developers pouring money into projects.”

So why the sudden interest? Predominantly because property prices in the city, which has long ranked as one of the most expensive in the US, have been growing rapidly.

The median price of a home in the city rose 8.9 cent in the 12 months to December 2015, according to the Greater San Diego Association of Realtors. Couple this with the low inventory — supply decreased 25.9 per cent over the same time period, the association says — and it is not surprising that developers have been trying to unlock the potential of certain downtown areas once considered déclassé.

“We’ve always had limited inventory,” says Dennis DeSouza, a broker with Remax Associates. “That’s the major reason why you’re seeing more development downtown.”

San Diego’s pristine beaches have long attracted wealthy second-home buyers. They are also especially popular with surfers, who have been drawn to laid-back communities such as Ocean Beach since the 1970s.

Yet while it often takes a back seat to its more cosmopolitan neighbor — Los Angeles is about 120 mile to the north — San Diego has, in recent years, been developing a cultural and gastronomic scene all its own. A number of restaurants have popped up in La Jolla, for example, and Barrio Logan, closer to the border with Mexico, has emerged as the center of a thriving art scene, with galleries such as Glashaus, Roots Factory and La Bodega housed in renovated industrial buildings.

Despite the real estate expansion downtown, larger, more expensive homes in San Diego are still found along the curving coastline, says Sansone.

In La Jolla, Willis Allen is marketing a four-bedroom house for $15.65m. The oceanfront home, which was built in 1993, measures 6,163 sq ft and has recently been renovated. Along the coast in Point Loma, a seaside community bordered on three sides by the Pacific, Remax is marketing a three-bedroom house on Sunset Cliffs Boulevard. Built in 1980, the property has more than 4,000 sq ft of living space and is on sale for $4.9M.

Ken Schwartz, a broker with Century 21 Award, says that while beachfront properties such as these mostly appeal to wealthy second-home buyers from California and the nearby states of Arizona and Nevada, foreign buyers are also expressing interest.

“Australian and Asian buyers are showing up in bigger numbers,” says Schwartz. “It’s a smaller sliver of this market but it’s growing.”

“Homes near the ocean will still command premium prices,” says Vidano. ‘But the condo market downtown will expand the pool of second-home buyers who want city living but also want to be near the water.”

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